revision kit groupii

8/12/2019 Revision Kit GroupII

1/127

Revision

KitFor C.A. IPCC Group-II

November-2013 Examinations

By

CA. PARVEEN SHARMACertified Valuer

B.Com (H), F.C.A., A.C.M.A., C.S.Post Graduation in Accounting Standards, US GAAP


2/127

May, 2013

CA. Parveen Sharma

Printing, Publishing & Distribution Rights of Current & Subsequent Editionsreserved with the Author

No Part of this book may be reproduced in any manner whatsoever or translatedin any other language without permission in writing from author.

PRICE `1695/-

Copyright No. L-28152/2007

Stockist: Pooja Law House Ph.: 23379103; 09350042870


3/127

DedicatedTo My Parents

Sh. SATPAL SHARMA

Smt. JANKI DEVI


4/127


5/127


6/127

Warning!!!!!!!!

Do you know?Piracy of books and classes is punishable offence.

Few students have been found in possession of pirated CD of Eten classes. Etenhad filed criminal cases against them. Dont be dishonest. Be our registeredstudents and enjoy host of benefits.

Benefits of Being Registered Students of Eten

Your phone no is synced with Parveen Sharma mobile and you can call himdirectly for queries.

Can use Learning Management System of ETEN for extra questions bank.

Can use Assessments/Tests at LMS site of ETEN.

Get Video Explanations at LMS of Eten website.

Get Class videos (Limited) at Eten Website.

Can download class notes and slides from smartclasses.org.

Will get amendment classes, if any before your attempt.

Will be informed of important amendments on mail.

Study from most updated and amended classes. Be updated on current issues.

Dont waste your time on old notes and CDs of our classes. Timeis most important for you. Avoid Police action.

Get 100% fees refund if you report any piracy to Eten [email protected]


7/127

REViSiONKiT

Revision Control Sheet vii

RevisionControlSheet

IPCCGROUPII:AdvancedAccountancy

ExamsinNovember2013

Name

Ph.No.

In 1st revision question should be solved. If question has any technical

concepts.

Red Markit so that it is again practiced in 2nd revision.

IMPORTANT

Date Remarks

Sep-13 Solve RTP of ICAI

1st Oct 2013 Check ICAI website for any announcements

related to examination.

25th Oct 2013 Do Mock Test from Nov-12 / May-13 Suggested

Answers to ICAI examination

1stRevision Sep13

2ndRevision 1stOct13

3rdRevision 15thOct13


8/127

REViSiON

KiT

viii Revision Control Sheet

RevisionControlSheet

IPCC

GROUP

II:

Advanced

Accountancy

ExamsinMay 2014

Name

Ph.No.


concepts.


IMPORTANT

Date Remarks

Sep-13 Solve RTP of ICAI Nov - 13

Dec-13 Solve Nov 13 exam of ICAI

Mar-14 Solve RTP of ICAI May - 14

1st April 2014 Check ICAI website for any announcements


25th April 2014 Do Mock Test from May-13/Nov-13 Suggested

Answers to ICAI examination

1stRevision Sep13

2ndRevision Nov13

3rdRevision Feb14

4thRevision 1stApril14

5thRevision 15thApril14


9/127

REViSiONKiT

Revision Control Sheet ix

RevisionControlSheetIPCCGROUPII:AdvancedAccountancy

Examsin

November

2014

Name

Ph.No.


concepts.


IMPORTANT

Date Remarks


Dec-13 Solve Nov 13 exam of ICAI

Mar-14 Solve RTP of ICAI May - 14

Jun-14 Solve May 14 exam of ICAI


1st Oct 2014 Check ICAI website for any announcements


25th Oct 2014 Do Mock Test from Nov-13 /May-14

Suggested Answers to ICAI examination

1stRevision Sep13

2ndRevision Dec13

3rdRevision Mar14

4thRevision Aug14

5thRevision Oct14


10/127

REViSiONKiT

x Topic Sheet of Advanced Accountancy

TOPICSHEETOFADVANCEDACCOUNTANCY

1stRevision 2ndRevision 3rdRevision 4thRevision 5thRevision RemarksQ.No.

Date Tick Date Tick Date Tick Date Tick Date Tick

Chapter1DepartmentalAccounts

1

2

3

4

5

6

7

89

10

11

12

13

14

15

16

17

18

19

Chapter2BranchAccounts

1

2

34

5

6

7


11/127

REViSiONKiT

Topic Sheet of Advanced Accountancy xi



8

9

10

11

12

13

14

15

16

17

1819

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

3738


12/127

REViSiONKiT

xii Topic Sheet of Advanced Accountancy



Chapter3PartnershipAccounts

1

2

3

4

5

6

7

8

9

1011

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

Chapter4ElectricityCompanies

1

2


13/127

REViSiONKiT

Topic Sheet of Advanced Accountancy xiii



3

4

5

6

7

8

9

10

11

Chapter5AccountingforBankingCompanies

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

1718

19

20

21


14/127

REViSiONKiT

xiv Topic Sheet of Advanced Accountancy



22

23

24

25

26

27

28

29

30

31

3233

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

5152


15/127

REViSiONKiT

Topic Sheet of Advanced Accountancy xv



Chapter6AccountsofInsuranceCompanies

1

2

3

4

5

6

7

8

9

1011

12

13

14

15

16

17

18

19

20

21

22

23

24

25


16/127

REViSiONKiT

xvi Topic Sheet of Advanced Accountancy



Chapter7Debentures

1

2

3

4

5

6

7

8

9

1011

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26


17/127

REViSiONKiT

Topic Sheet of Advanced Accountancy xvii



Chapter8LiquidationofCompanies

1

2

3

4

5

6

7

8

9

1011

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

Chapter9MiscellaneousCompanyAccounts

1

2

3


18/127

REViSiONKiT

xviii Topic Sheet of Advanced Accountancy



4

5

6

7

8

9

10

11

12

13

1415

16

17

18

19

20

21

22

23

24

25

26

27

28

Chapter10

Internal

Reconstruction

1

2

3

4


19/127

REViSiONKiT

Topic Sheet of Advanced Accountancy xix



5

6

7

8

9

10

11

12

AS14:AccountingforAmalgamations

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

1718

19

20

21


20/127

REViSiONKiT

xx Topic Sheet of Advanced Accountancy



22

23

24

25

26

27

28

29

30

31

3233

34

35

36

37

38

39

40

41

42

43

44

45


21/127

REViSiONKiT

List of Important Questions xxi

CAIPCCGROUPII ADVANCEDACCOUNTANCY

For 44th Batch

LISTOFIMPORTANTQUESTIONS

CHAPTERS IMPORTANTQUESTION

DEPARTMENTAL

ACCOUNTS

1, 2, 3, 5, 6, 8, 10, 11, 13, 14, 15, 16.

BRANCHACCOUNTS 1, 2, 4, 5, 7, 8, 10, 11, 12, 15, 16, 17, 21,

22, 24, 25, 28, 29, 32, 35, 36, 37.

PARTNERSHIPACCOUNTS 1, 2, 5, 6, 7, 8, 10, 12, 15, 16, 18, 19, 20,

23, 24, 25, 27.

ELECTRICITYCOMPANIES 1, 2, 3, 4, 5, 6, 8, 9, 11.

BANKINGCOMPANIES 1, 2, 4, 5, 7, 8, 9, 11, 12, 14, 15, 18, 19,

20, 21, 22, 24, 27, 28, 31, 32, 34, 35, 37,

38, 41, 43, 44, 45, 49, 52.

INSURANCECOMPANIES 1, 2, 3, 5, 6, 8, 9, 10, 14, 15, 16, 17, 20,

22, 23, 25.

DEBENTURES 2, 3, 5, 6, 7, 8, 11, 13, 15, 17, 18, 19, 22,

24, 25, 26.

LIQUIDATION

OF

COMPANIES 1, 3, 4, 6, 7, 8, 9, 10, 11, 13, 14, 15, 16,18, 19, 22, 23, 25.

MISC.COMPANY

ACCOUNTS

1, 3, 6, 8, 11, 12, 13, 14, 16, 17, 19, 22,

24, 26, 28.

AMALGAMATION 2, 7, 9, 10, 11, 13, 15, 16, 17, 18, 19, 21,

23, 24, 25, 29, 30, 31, 32, 34, 35, 36, 38,

39, 41, 42, 44, 45.

INTERNAL

RECONSTRUCTION

1, 2, 3, 5, 6, 7, 8, 9, 10, 11, 12.


22/127

REViSiON

Remarks

xxii Revision Remarks

RevisionRemarks


23/127

REViSiON

Remarks

Revision Remarks xxiii


24/127

REViSiON

Remarks

xxiv Revision Remarks


25/127

REViSiON

Remarks

Revision Remarks xxv


26/127

REViSiON

Remarks

xxvi Revision Remarks


27/127

REViSiON

Remarks

Revision Remarks xxvii


28/127

REViSiON

Remarks

xxviii Revision Remarks


29/127

REViSiON

Remarks

Revision Remarks xxix


30/127

REViSiON

Remarks

xxx Revision Remarks


31/127

REViSiON

Remarks

Revision Remarks xxxi


32/127

REViSiON

Remarks

xxxii Revision Remarks


33/127

REViSiON

Remarks

Revision Remarks xxxiii


34/127

REViSiON

Remarks

xxxiv Revision Remarks


35/127


36/127

REViSiON

Remarks

xxxvi Revision Remarks


37/127

REViSiON

Remarks

Revision Remarks xxxvii


38/127

REViSiON

Remarks

xxxviii Revision Remarks


39/127

REViSiON

Remarks

Revision Remarks xxxix


40/127

REViSiON

Remarks

xl Revision Remarks


41/127

REViSiON

Remarks

Revision Remarks xli


42/127

REViSiON

Remarks

xlii Revision Remarks


43/127

REViSiON

Remarks

Revision Remarks xliii


44/127

REViSiON

Remarks

xliv Revision Remarks


45/127

MOCK TEST PAPER-A

IPCC: GROUP-II

PAPER - 5: ADVANCED ACCOUNTINGQuestion 1:

(a) How would you treat the Government grant received relating to adepreciable asset under the following cases as per AS-12?

Case I: Gross value of asset `2 crores and Grant received `20 lakhs only.

Case ii: Gross value of asset `2 crores and Grant received `2 crores.

Net Profit for the current year `2,00,00,000

Number of equity shares outstanding 40,00,000

Basic earnings per share `5.00

Number of 11% convertible debentures of `100 each 50,000

Each debenture is convertible into 8 equity shares.Interest expense for the current year `5,50,000

Tax saving relating to interest expense (30%) `1,65,000

(b) From the following information relating to Omega Ltd., calculate dilutedearnings per share as per AS 20:

(c) Manisha Ltd. makes provision for expenses worth ` 7,00,000 for the yearending March 31, 2010, but the actual expenses during the year endingMarch 31, 2011 comes to `9,00,000 against provision made during the lastyear. State with reasons whether difference of `2,00,000 is to be treated asprior period item as per AS 5.

(d)

Exchange Rate per

$

Goods purchased on 1.1.2010 of US $ 10,000 `45

Exchange rate on 31.3.2010 `44

Date of actual payment 7.7.2010 `43

Ascertain the loss/gain for financial years 2009-10 and 2010-11, also givetheir treatment as per AS 11. (5 Marks each)

Question 2: L and T have been carrying on same business independently. Dueto competition in the market, they decided to amalgamate and form a newcompany called LT Ltd.

Following is the Balance Sheet of L and T as at 31.3.2011:

Liabilities L T Assets L T

Capital 7,75,000 8,55,000 Plant &machinery

4,85,000 6,14,000


46/127

2 Mock Test Paper-A: Questions

Liabilities L T Assets L T

Currentliabilities 6,23,500 5,57,600 Building 7,50,000 6,40,000

Current assets 1.63,500 1.58.600

13,98,500 14,12,600 13,98,500 14,12,600

Following are the additional information:

(i) The authorised capital of the new company will be `25,00,000 divided into1,00,000 equity shares of `25 each.

(ii) Liabilities of L includes `50,000 due to T for the purchases made. T made aprofit of 20% on sale to L.

(iii) L has goods purchased from T, cost to him `10,000. This is included in thecurrent asset of L as at 31st March, 2011.

(iv) The assets of L and T are to be revalued as under:L T

Plant and machinery 5,25,000 6,75,000

Building 7,75,000 6,48,000

(v) The purchase consideration is to be discharged as under:

(a) Issue 24,000 equity shares of `25 each fully paid up in the proportionof their profitability in the preceding 2 years.

(b) Profits for the preceding 2 years are given below:

L T

1st year 2,62,800 2,75,125

IInd year 2,12,200 2,49,875

Total 4,75,000 5,25,000

(c) Issue 12% preference shares of ` 10 each fully paid up at par to provideincome equivalent to 8% return on capital employed in the business as on31.3.2011 after revaluation of assets of L and T respectively.

You are required to:

(i) Compute the amount of equity and preference shares issued to L andT.

(ii) Prepare the Balance Sheet of L & T Ltd. immediately afteramalgamation.

(16 Marks)

Question 3: Rohan Ltd. has three departments I, J, K. The following informationis provided for the year ended 31.3.2011:


47/127

Mock Test Paper-A: Questions 3

I J K

Opening stock 5,000 8,000 19,000Opening reserve for unrealised profit 2,000 3,000

Materials consumed 16,000 20,000

Direct labour 9,000 10,000

Closing stock 5,000 20,000 5,000

Sales 80,000

Area occupied (sq. mtr.) 2,500 1,500 1,000

No. of employees 30 20 10

Stock of each department is valued at cost to the department concerned.Stock of I is transferred to J at cost plus 20% and stock of J is transferred to

K at a gross profit of 20% on sales. Other common expenses are salariesand staff welfare `18,000 and rent `6,000.

Prepare Departmental Trading, Profit and Loss Account for the year ending31.3.2011.

(16 Marks)

Question 4: A, B, C and D were partners sharing profits and losses in the ratio of3:3:2:2. Following was the balance sheet as on 31st March, 2011:

Liabilities Assets

Sundry creditors 15,500 Sundry debtors 16,000

A's loan 10,000 Less: Provision for baddebts

500 15,500

Capitalaccounts:

Stock in trade 10,000

A 20,000 Cash at bank 2,000

B 15,000 35,000 Furniture and fixture 4,000

Trade mark 7,000

Capital accounts:

C 16,000

D 6,000 22,000

60,500 60,500

On 31st March, 2011, the partnership firm was dissolved and B wasappointed to realise the assets and pay off the liabilities. He was entitled toreceive 5% commission on the amount finally paid to other partners ascapital. He was to bear the expenses of realization.


48/127


The assets realised were as follows: sundry debtors `11,000; stock `8,000;furniture and fixture `1,000; trade mark `4,000; creditors were paid off infull; in addition a contingent liability for bills receivable discounted,

materialized to the extent of `2,500. Also there was a joint life insurancepolicy for ` 30,000 This was surrendered for ` 3,000. Expenses ofrealisation amounted to `500. 'C' was insolvent, but `3,700 were recoveredfrom his estate.

You are required to show the following accounts in the book of partnershipfirm:

1. Realisation account

2. Cash account

3. Partners' capital accounts. (16 Marks)

Question 5:

(a) On 31st March, 2010, Uncertain Bank Ltd. had a balance of `9 crores in

"rebate on bills discounted" account. During the year ended 31st March,2011, Uncertain Bank Ltd. discounted bills of exchange of ` 4,000 crorescharging interest at 18% per annum the average period of discount being for73 days. Of these, bills of exchange of `600 crores were due for realisationfrom the acceptors/customers after 31st March, 2011, the average periodoutstanding after 31st March, 2011 being 365 days.

Uncertain Bank Ltd. asks you to pass journal entries and show the ledgeraccounts pertaining to:

(i) discounting of bills of exchange and

(ii) rebate on bills discounted. (8 Marks)

(b) Agni Fire Insurance Co. Ltd. commenced its business on 1.4.2010. Itsubmits you the following information for the year ended 31.3.2011:

Premium received 15,00,000

Re-insurance premium paid 1,00,000

Claims paid 7,00,000

Expenses of Management 3,00,000

Commission paid 50,000

Claims outstanding on 31.3.2011 1,00,000

Create reserve for unexpired risk @40%

Prepare Revenue account for the year ended 31.3.20116.

(8 Marks)

Question 6:

(a) Electric Supply Ltd. rebuilt and re-equipped one of their Mains at a CashCost of `40,00,000. The old Mains thus superseded cost `15,00,000. Thecapacity of the new Main is double that of the old Main. ` 70,000 was


49/127

Mock Test Paper-A: Questions 5

realised from sale of old materials. Four old motors valued at ` 2,00,000salvaged from the old Main were used in the reconstruction. The cost ofLabour and Materials is respectively 30% and 25% higher now than when

the old Main was built. The proportion of Labour to Materials in the Mainthen and now is 2 : 3.

Show the Journal entries for recording the above transactions. (8 Marks)

(b) From the data relating to a company which went into voluntary liquidation,you are required to prepare the liquidator's Final Statement of Account.

(i) Cash with liquidators (after all assets are realised and securedcreditors and debentureholders are paid) is `7,50,000.

(ii) Preferential creditors to be paid `35,000.

(iii) Other unsecured creditors `2,30,000.

(iv) 5,000, 10% preference shares of `100 each fully paid.

(v) 3,000 equity shares of `100 each, `75 per share paid up.

(vi) 7,000 equity shares of `100 each, `60 per share paid up.

(vii) Liquidator's remuneration is 2% on payments to preferential and otherunsecured creditors. (8 Marks)

Question 7: Answer any four out of five:

(a) A retail store has a policy of refunding purchases by dissatisfied customers,even though it is under no legal obligation to do so. Its policy of makingrefunds is generally known. Is it a liability?

(b) In Nidhi Co. Ltd., theft of cash of `2 lakhs by the cashier in January, 2011was detected in May, 2011. The accounts of the company were not yetapproved by the Board of Directors of the company.

Whether the theft of cash has to be adjusted in the accounts of the company

for the year ended 31.3.2011. Decide.(c) Rohan Limited wishes to obtain a machine costing ` 30 lakhs by way of

lease. The effective life of the machine is 14 years, but the companyrequires it only for the first 5 years. It enters into an agreement with AshokLtd., for a lease rental for `3 lakhs p.a. payable in arrears and the implicitrate of interest is 15%. The chief accountant of Rohan Limited is not sureabout the treatment of these lease rentals and seeks your advise.

(d) N Co. Ltd. has its share capital divided into equity shares of `10 each. On1.10.2010 it granted 20,000 employees' stock option at ` 50 per share,when the market price was ` 120 per share. The options were to beexercised between 10th December, 2010 and 31st March, 2011. Theemployees exercised their options for 16,000 shares only and the remainingoptions lapsed. The company closes its books on 31st March every year.

Show Journal entries (with narration) as would appear in the books of thecompany upto 31st March, 2011.


50/127


(e) Himani Ltd. in the past three years spent `75,00,000 to develop a Drug totreat Cancer, which was charged to Profit and Loss Account since they didnot meet AS 26 criteria for capitalization. In the current year approval of the

concerned Government Authority has been received. The Company wishesto capitalize `75,00,000 and disclose it as a prior period item. Is it correct?Give reason for your views. (4 Marks each)


51/127

MOCK TEST PAPER-A

PAPER - 5: ADVANCED ACCOUNTING SUGGESTED

ANSWERS/HINTSAns 1:

(a) Case I

As per AS 12, Grant received of`20 lakhs to be deducted from`2 crores.The balance of`1.80 crores to be shown as value of depreciable asset inthe Balance Sheet and depreciation should also be charged on ` 1.80crores.

Case II

As the entire grant amount is received it shall be recorded at a normal valueof`100 in the Balance sheet so that the existence of the asset reflected. Nodepreciation is to be charged in this case.

Note: Alternatively, government grants may be treated as deferred income

which should be recognized in the profit and loss statement on a systematicand rational basis over the useful life of the asset.

(b) Adjusted Net profit for the current year

= 2,00,00,000+5,50,000 - 1,65,000 =`2,03,85,000

Number of equity shares resulting from conversion of debentures

= 50,000 8 = 4,00,000 equity shares

Total number of equity shares resulting from conversion of debentures

= 40,00,000 + 4,00,000 = 44,00,000 shares

Diluted Earnings per share =`2,03,85,000

44,00,000=`4.63 (Approximately)

(c) As per AS 5 'Net Profit or Loss for the Period, Prior Period Items andChanges in Accounting Policies', as a result of the uncertainties inherent inbusiness activities, many financial statement items cannot be measured withprecision but can only be estimated. The estimation process involves

judgments based on the latest information available. The use of reasonableestimates is an essential part of the preparation of financial statements anddoes not undermine their reliability.

Estimates may have to be revised, if changes occur regarding thecircumstances on which the estimate was based, or as a result of newinformation, more experience or subsequent developments.

As per the standard, the effect of a change in an accounting estimate shouldbe classified using the same classification in the statement of profit and lossas was used previously for the estimate. Prior period items are income or

expenses which arise in the current period as a result of errors or omissionsin the preparation of the financial statements of one or more prior periods.Thus, revision of an estimate by its nature, i.e. the difference of`2 lakhs isnot a prior period item.

Therefore, in the given case expenses amounting`2,00,000 (i.e.`9,00,000-` 7,00,000) relating to the previous year recorded in the current year,


52/127

8 Mock Test Paper-A: Answers

should not be regarded as prior period item.

(d) As per AS 11, The Effects of Changes in Foreign Exchange Rates', allforeign currency transactions should be recorded by applying the exchange

rate on the date of transactions. Thus, goods purchased on 1.1.2010 andcorresponding creditor would be recorded at ` 4,50,000 (i.e. $10,000 `45).

According to the standard, at the balance sheet date all monetarytransactions should be reported using the closing rate. Thus, creditor of US$10,000 on 31.3.2010 will be reported at `4,40,000 (i.e. $10,000 ` 44)and exchange profit of`10,000 (i.e. 4,50,000 - 4,40,000) should be creditedto Profit and Loss account in the year 2009-10.

On 7.7.2010, creditor of $10,000 is paid at the rate of `43. As per AS 11,exchange difference on settlement of the account should also be transferredto Profit and Loss account. Therefore,`10,000 (i.e. 4,40,000 - 4,30,000) willbe credited to Profit and Loss account in the year 2010-11.

Ans 2:(i) Calculation of amount of equity shares issued to L and T

Profits of L T

1st Year 2,62,800 2,75,125

IInd Year 2,12,200 2,49,875

Total 4,75,000 5,25,000

No. of shares to be issued

= 24,000 equity shares in the

proportion of the preceding 2

years' profitability24000 475/1000 11,400 equity shares

24000 525/1000 12,600 equity shares

Calculation o f amount of 12% Preference shares issued to L and T

L T

Capital employed (Refer working note 1) 8,40,000 9,24,000

8% return on capital employed 67,200 73,920

12% Preference shares to be issued`5,60,000 100

67,20012

`6,16,00010073,920

12


53/127

Mock Test Paper-A: Answers 9

Total Purchase Consideration

L T

Equity shares 2,85,000 3,15,000

12% Preference shares 5,60,000 6,16,000

Total 8,45,000 9,31,000

(ii) Balance Sheet of LT Ltd. (after amalgamation)

Liabilities Assets

Authorised share capital: Fixed assets:

1,00,000 Equity Shares of Goodwill (W.N.1) 14,000

`25 each 25,00,000 Plant and Machinery 12,00,000

Issued and subscribed share

capital:

Building 14,23,000

Current Assets (W.N.2) 2,70,100

24,000 Equity Shares of`25each

6,00,000

1,17,600 12% Preference 11,76,000

shares of`10 each

(All of the equity and

preference shares have been

issued for consideration other

than cash)

Current Liabilities (W.N. 3) 11,31,10029,07,100 29,07,100

Working Notes:

1. Goodwill

L T

Plant and machinery 5,25,000 6,75,000

Building 7,75,000 6,48,000

Current assets 1,63,500 1,58,600

14,63,500 14,81,600

Less: Current liabilities (6,23,500) (5,57,600)Net assets taken (capital employed) 8,40,000 9,24,000

Less: Purchase consideration (8,45,000) (9,31,000)

Goodwill 5,000 7,000


54/127


L T

Total purchased goodwill 12,000Add: Unrealised profit of`10,000 @ 20% =

`2,000 adjusted from current assets and from

goodwill (since P & L A/c is not given) 2,000

Total Goodwill 14,000

2. Current Assets

L T

Balances before amalgamation 1,63,500 1,58,600

Less: Liabilities of L due to T - (50,000)

Less: Unrealised Profit on stock i.e.`10,000x20% (2,000)

Total 1,61,500 1,08,600

Grand Total 2,70,100

3. Current Liabilities

L T

Balances before amalgamation 6,23,500 5,57,600

Less: Liabilities of L due to T (50,000) -

Total 5,73,500 5,57,600

Grand Total 11,31,100

Ans 3:

ROHAN LTD.Departmental Trading and Profit and Loss Account

for the year ended 31st March, 2011

I J K Total I J K Total

To Opening stock 5,000 8,000 19,000 32,000 By Sales 80,000 80,000

To Material consumed 16,000 20,000 36,000 By Inter-departmental

To Direct labour 9,000 10,000 19,000 transfer 30,000 60,000 90,000

To Inter-departmental By Closing stock 5,000 20,000 5,000 30,000

transfer 30,000 60,000 90,000

To Gross profit 5,000 12,000 6,000 23,000

35,000 80,000 85,000 2,00,000 35,000 80,000 85,000 2,00,000


55/127


I J K Total I J K Total

To Salaries and staff By Gross profit b/d 5,000 12,000 6,000 23,000welfare 9,000 6,000 3,000 18,000 By Net loss 7,000 7,000

To Rent 3,000 1,800 1,200 6,000

To Net profit 4,200 1,800 6,000

12,000 12,000 6,000 30,000 12,000 12,000 6,000 30,000

To Net loss (I) 7,000 By Net profit (J + K) 6,000

To Stock reserve (J + K) By Stock reserve b/d(J + K)

5,000

(Refer W.N.) 3,000

To Balance transferred

to Profit and loss

account 1,000

11,000 11,000

Working Note:

Calculation of unrealized profit on closing stock

Stock reserve of J department

Cost 30,000

Transfer from I department 30,000

60,000

Stock of J department 20,000

Proportion of stock of I department =`20,000 ` 30,00060,000

=`10,000

Stock reserve =`10,000 x20

120=`1667 (approx.)

Stock reserve of K department

Stock transferred from J department 5,000

Less: Profit (stock reserve) (5,000 20%) (1,000)

Cost to J department 4,000

Proportion of stock of I department =`4,000 ` 30,00060,000 =`2,000

Stock reserve =`2,000 20

120=`333(approx.)

Total stock reserve =`1,000 +`333 =`1,333.


56/127


57/127


Working Notes:

(1) There was a debit balance of` 8,400 in D's capital account and D is asolvent partner, therefore he must bring cash for balance capital.

(2) 'C is insolvent therefore he is not able to bring cash. The deficiency in hisaccount is borne by 'A' and 'B' in the ratio of 4:3 (capital ratio).

Deficiency in 'C's account =`16,000 +`2,400 `3,700 =`14,700

Borne by A = 4/7 `14,700 =`8,400

Borne by B = 3/7 `14,700 =`6,300

(3) 'B' is entitled to get 5% commission on the amount finally paid to partner 'A'only. The calculation is as follows: (`20,000 `3,600 `8,400) 5/105 =`381.

(4) Mr. As loan is paid off in cash.

Ans 5:

(a) Uncertain Bank Ltd.

Journal Entries

(Rupees in crores)

Dr. Cr.

Rebate on bills discounted A/c Dr. 9.00

To Discount on bills A/c 9.00

(Being the transfer of opening balance in rebate on billsdiscounted account to discount on bills account)

Bills purchased and discounted A/c Dr. 4000.00

To Discount on bills A/c

18 73Rs. 4,000 crores 100 365

144.00

To Clients A/c 3,856.00

(Being the discounting of bills of exchange during theyear)

Discount on bills A/c Dr. 10.80

To Rebate on bills discounted A/c 10.80

(Being the unexpired portion of discount in respect of thediscounted bills of exchange carried forward)

Discount on bills A/c Dr. 142.20

To Profit and loss A/c 142.20(Being the amount of income for the year from discountingof bills of exchange transferred to Profit and Loss A/c)


58/127


Ledger Accounts

(i) Discount on bills A/c

2011 2010

March To Rebate on bills 10.80 April 1 By Rebate on bills 9.00

31 discounted A/c discounted A/c

To Profit and lossA/c

142.20 2010-11 By Bills purchasedand discounted A/c

144.00

153.00 153.00

(ii) Rebate on bills di scounted A/c

2010 2010

April 1 To Discount on bills A/c 9.00 April 1 By Balance b/d 9.00

2011 2011March31

To Balance c/d 10.80 March 31 By Discount on billsA/c

10.80

19.80 19.80

(b) Form B - RA (Prescribed by IRDA)

Name of the Insurer: Agni Fire Insurance Co. Ltd.

Registration No. and Date of registration with the IRDA:

Revenue Account fo r the year ended 31st March, 2011

Particulars Schedule Current yearended on 31st

March, 2011

1. Premiums earned (Net) 1 8,40,000

Total (A) 8,40,000

1. Claims incurred (Net) 2 8,00,000

2. Commission 50,000

3. Operating Expenses 3 3,00,000

Total (B) 11,50,000

Operating Profit/(Loss) from FireInsurance

Business [C = (A-B)] (3,10,000)


59/127


Schedule 1

Premiums earned (Net)

Premium received 15,00,000

Less: Premium on re-insurance paid 1,00,000

14,00,000

Less: Change in provision for unexpired risk (NIL5,60,000) (5,60,000)

Net Premium 8.40,000

Schedule 2

Claims

Claims paid 7,00,000

Add: Claims outstanding on 31.3.2011 1,00,000

8,00,000

Schedule 3Operating expenses

Expenses of Management 3,00,000

Ans 6:

(a) Electric Supply Ltd.

Journal Entries

Dr. Cr.

New Main Account Dr. 20,95,000

Replacement Account Dr. 19,05,000

To Bank Account 40,00,000

(Being current cost of replacement charged tore- placement account and the balance

amount capitalised)

New Main Account Dr. 2,00,000

To Replacement Account 2,00,000

(Being the value of motors salvaged from old

main used in the reconstruction of main)Bank Account Dr. 70,000

To Replacement Account 70,000

(Being the amount realised from sale of oldmaterials credited to replacement account)


60/127


Dr. Cr.

Revenue Account Dr. 16,35,000To Replacement Account 16,35,000

(Being the net current cost of replacement

transferred to revenue account)

Working Notes:

1. Current cost of replacement:

Cost ofexisting

main

Increase in cost Current

Rate Amount cost

Materials (3/5 `15 lacs) 9,00,000 25% 2,25,000 11,25,000

Labour (2/5 `15 lacs) 6,00,000 30% 1,80,000 7,80,000

Estimated current cost forreplacement of present main (amountto be charged to replacementaccount)

19,05,000

2. Additional cost of reconstruction of main (to be capitalised)

Cash cost of re-building new main 40,00,000

Less: Estimated current cost for replacement of existing old main (19,05,000)

Additional cost in new main to be capitalised (excluding oldmotors used)

20,95,000

3. Replacement Account

To Bank A/c 19,05,000 By New Main A/c 2,00,000

By Bank A/c 70,000

By Replacement A/c (Bal. fig.) 16,35,000

19,05,000 19,05,000


61/127


(b) Liquidator's Final Statement of Account

To Cash in hand 7,50,000 By Liquidator's 5,300To Cash/bank remuneration (2% on

(Amount received on call 2,65,000)

for 7,000 equity shares @` 45,710 By Preferential creditors 35,000

6.53 per share) By Unsecured creditors 2,30,000

By Preference shareholders 5,00,000

By Equity shareholders

(Amount paid to holders

of 3,000 equity shares

@`8.47 per equity

share) 25,410

7,95,710 7,95,710

Working Note:

Calculation of amount receivable from equity shareholders or payable toequity shareholders

Cash in hand (Assets realized) 7,50,000

Less: Payments made:

Liquidator's remuneration 5,300

Preference creditors 35,000Unsecured creditors 2,30,000

Preference shareholders 5,00,000 7,70,300

20,300

Add: Amount payable to equity shareholders (paid up):

3,000 equity shares of`100 each`75 paid up 2,25,000

7,000 equity shares of`100 each`60 paid up 4,20,000 6,45,000

Total loss to be borne by equity shareholders 6,65,300

No. of equity shares 10,000 shares

Loss per equity share = 6,65,30010,000

=`66.53

35,000 + 2,30,000 = 2,65,000


62/127


Amount receivable from 7,000 equity shareholders

= 7,000 6.53 (i.e. 66.53 60) =`45,710

Amount payable to 3,000 equity shareholders

= 3,000 8.47 (i.e. 75 - 66.53) =`25,410

Ans 7:

(a) It is a present obligation as a result of past obligating event. The obligatingevent is the sale of the product which gives rise to an obligation becauseobligations also arise from normal business practices. An outflow ofresources, embodying economic benefits in settlement is probable becausea proportion of goods are returned for refund. For the best estimate of thecost of refunds, a provision should be recognized as per AS 29.

(b) As per para 13 of AS 4 (revised), 'Contingencies and Events Occurring Afterthe Balance Sheet Date', assets and liabilities should be adjusted for events

occurring after the balance sheet date that provide additional evidence toassist the estimation of amounts relating to conditions existing at thebalance sheet date.

Though the theft, by the cashier`2,00,000, was detected after the balancesheet date (before approval of financial statements) yet it is an additionalinformation materially affecting the determination of the cash amountrelating to conditions existing at the balance sheet date. Therefore, it isnecessary to recognize the loss amounting ` 2,00,000 and adjust theaccounts of the company for the year ended 31st March, 2011.

(c) As per AS 19 leases', a lease will be classified as finance lease if at theinception of the lease, the present value of minimum lease paymentamounts to at least substantially all of the fair value of leased asset. In afinance lease, lease term should be for the major part of the economic life of

the asset even if title is not transferred. In the given case, the implicit rate ofinterest is given at 15%. The present value of minimum lease payments at15% using PV- Annuity Factor can be computed as:

Annuity Factor `3.36 lakhs (approx.)

(Year 1 to Year 5 Flows`3 lakhs each year)

Present Value of minimum lease payments `10.08 lakhs (approx.)

Thus present value of minimum lease payments is`10.08 lakhs and the fairvalue of the machine is`30 lakhs. In a finance lease, lease term should befor the major part of the economic life of the asset even if title is nottransferred. However, in the given case, the effective useful life of themachine is 14 years while the lease is only for five years.

Therefore lease agreement is an operating lease. Lease payments under an

operating lease should be recognized as an expense in the statement ofprofit and loss on a straight line basis over the lease term unless anothersystematic basis is more representative of the time pattern of the user'sbenefit.

In calculating the present value of the of minimum lease payments, the discount rate is theinterest rate implicit in the lease


63/127


(d) In the books of N Co. Ltd.

Journal Entries

1.10.2010 Employee compensation expense A/c Dr. 14,00,000

To Employee stock option outstanding A/c 14,00,000

(Being the grant of 20,000 stock options to employeesat`50 when market price is`120)

10.12.10 Bank A/c Dr. 8,00,000

to Employee stock option outstanding A/c Dr. 11,20,000

31.3.11 To Equity share capital A/c 1,60,000

To Securities premium A/c 17,60,000

(Being shares issued to the employees against theoptions vested to them in pursuance of Employee

Stock Option Plan)31.3.11 Employee stock option outstanding A/c Dr. 2,80,000

To Employee compensation expense A/c 2,80,000

(Being reverse entry passed for lapse of 4,000 stockoptions)

31.3.11 Profit and Loss A/c Dr. 11,20,000

To Employee compensation expense A/c 11,20,000

(Being transfer of employee compensation transferredto Profit and Loss Account)

(e) As per AS 26 'Intangible Assets', the condition for recognition of a researchand development asset has to be fulfilled when the expenditure was

incurred. If the recognition conditions are not fulfilled the amount has to becharged to the profit and loss account. Once the amount is charged to theProfit and Loss account, such amount cannot be restated later as aResearch and Development Asset when the condition for recognition getfulfilled. The Company therefore cannot capitalize ` 75,00,000 even as aprior period item.


64/127


65/127

Mock Test Paper-B: Questions 21

debtors as on 31.3.2012. The accounts were not approved by the Board ofDirectors till the date of decision. While applying the relevant accountingstandard can this revision be considered as an extraordinary item or prior

period item (5 Marks each)Question 2: 'S' and T were carrying on business as equal partners. TheirBalance Sheet as on 31st March, 2011 stood as follows:

Liabilities Assets

Capital accounts: Stock 2,70,000

S 6,40,000 Debtors 3,65,000

T 6,60,000 13,00,000 Furniture 75,000

Creditors 3,27,500 Joint life policy 47,500

Bank overdraft 1,50,000 Plant 1,72,500

Bills payable 62,500 Building 9,10,000

18,40,000 18,40,000The operations of the business were carried on till 30th September, 2011. Sand T both withdrew in equal amounts, half the amount of profits madeduring the current period of 6 months after 10% per annum had been writtenoff on building and plant and 5% per annum written off on furniture. Duringthe current period of 6 months, creditors were reduced by ` 50,000, Billspayable by `11,500 and Bank overdraft by `75,000. The Joint Life policywas surrendered for `47,500 on 30th September, 2011. Stock was valuedat `3,17,000 and debtors at `3,25,000 on 30th September, 2011. The otheritems remained the same as on 31st March, 2011.

On 30th September, 2011 the firm sold its business to ST Ltd. The value ofgoodwill was estimated at `5,40,000 and the remaining assets were valuedon the basis of the Balance Sheet as on 30th September, 2011. The ST Ltd.

paid the purchase consideration in equity shares of ` 10 each. You arerequired to prepare a Realization Account and Capital accounts of thepartners. (16 Marks)

Question 3: Success Ltd. issued ` 10,00,000, 6% Debenture Stock at par on21.1.2002. Interest was payable on 30th June and 31st December, in each year.

Under the terms of the Debentures Trust the owned stock is redeemable at par.The trust deed obliges the Company to pay to the trustees on 31st December,2009 and annually thereafter the sum of ` 1,00,000 to be utilized for theredemption and cancellation of an equivalent amount of stock, which is to beselected by drawing lots.

Alternatively, the Company is empowered as from 1st January, 2009 to purchaseits own debentures from the open market. These Debentures must be

surrendered to the Trustees for cancellation and any adjustments for accruedinterest recorded in the books of account. If in any year the nominal amount ofthe stock surrendered under this alternative does not amount to `1,00,000 thenthe shortfall is to be paid by the Company to the Trustees in cash on 31stDecember.


66/127

22 Mock Test Paper-B: Questions

The following purchases of stock were made by the Company:

Nominal value of stockpurchased

Purchase price per100 of stock

(1) 30th September, 2009 1,20,000 98

(2) 31st May, 2010 75,000 95 (Ex-interest)

(3) 31st July, 2011 1,15,000 92

The Company fulfilled all its obligations under the trust deed.

Prepare the Ledger Accounts:

(a) Debenture Stock A/c

(b) Debenture Redemption A/c

(c) Debenture Interest A/c.

Note: Ignore costs and taxation (16 Marts)Question 4: Prepare Revenue Account in proper form for the year ended 31stMarch, 2012, from the following particulars related to Saviour General InsuranceCo. for the year ended 2011-12:

Related to Directbusiness

Related toReinsurance

() ()Premiums:

Amount received 30,00,000 2,40,000

Receivable at the beginning 1,80,000 24,000

Receivable at the end 2,40,000 36,000

Amount paid -- 3,60,000

Payable at the beginning -- 30,000

Payable at the end -- 42,000

Claims:

Amount paid 18,00,000 1,80,000

Payable at the beginning 60,000 12,000

Payable at the end 1,20,000 18,000

Amount recovered -- 1,20,000

Receivable at the beginning -- 18,000

Receivable at the end -- 12,000

Commission:

Amount paid 72,000 10,800

Amount received 14,400


67/127


Additional information:

(i) Interest, dividend and rent received 30,000

Income-tax in respect of above 6,000

(ii) Management expenses including ` 12,000 related to legal expensesregarding claims 1,32,000.

(iii) Provision for income tax existing at the beginning of the year was`1,95,000, the income-tax actually paid during the year `1,68,000 and theprovision necessary at the year end `2,07,000.

(iv) The net premium income of the company during the year 2010-2011 was` 24,00,000 on which reserve for unexpired risk @ 50% and additionalreserve @ 7 % was created. This year, the balance to be carried forwardis 50% of net premium on reserve for unexpired risk and 5% on additionalreserve. (16 Marks)

Question 5:

(a) Here and There and Co. of Mumbai started a branch at Bangalore on

1.4.2011 to which goods were sent at 20% above cost. The branch makesboth cash sales and credit sales. Branch expenses are met from branchcash and balance money remitted to H.O. The branch does not maintaindouble entry books of account and necessary accounts relating to branchare maintained in H.O. Following further details are given for the yearending on 31.3.2012:

Cost of goods sent to branch 1,00,000

Goods received by branch till 31.3.2012 at Invoice price 1,08,000

Credit sales for the year 1,16,000

Closing debtors on 31.3.2012 41,600

Bad debts written off during the year 400

Cash remitted to H.O. 86,000

Closing cash on hand at branch on 31.3.2012 4,000

Cash remitted by H.O. to branch during the year 6,000

Closing stock in hand at branch at invoice price 12,000

Expenses incurred at branch 24,000

Draw up the necessary Ledger Accounts like Branch Debtors Account,Branch Stock Account, Goods sent to Branch Account, Branch Cash

Account, Branch Expenses Account and Branch Adjustment Account forascertaining gross profit and Branch Profit and Loss Account forascertaining Branch profit. (8 Marks)

(b) A joint stock company resolved to issue 10 lakh equity shares of `10 eachat a premium of `1 per share. One lakh of these shares were taken up bythe directors of the company, their relatives, associates and friends, theentire amount being received forthwith. The remaining shares were offeredto the public, the entire amount being asked for with applications. The issuewas underwritten by X, Y and Z for a commission @ 2% of the issue price.


68/127


65% of the issue was underwritten by X, while Y's and Z's shares were 25%and 10% respectively.

The underwriters were to submit unmarked applications for shares

underwritten firm with full application money along with members of thegeneral public.

Marked applications were as follows: X - 1,19,500 shares; Y - 57,500 sharesand Z- 10,500 shares.

Unmarked applications totalled 7,00,000 shares.

Accounts with the underwriters were promptly settled.

You are required to:

(i) Prepare a statement calculating underwriter's liability for shares.

(ii) Pass journal entries for all transactions including cash transactions.

(8 Marks)

Question 6:

(a) Bright Electricity Company earned a profit of `1,20,00,000 (after tax) for theyear ended 31st March, 2011 on which date it had a capital base of` 8,74,00,000 and the bank rate was 8%. The following additionalinformation about the company is also provided to you:

Reserve Fund Investment, invested in 8% Governmentsecurities at par

1,20,00,000

Contingencies Reserve Fund investments @ 7% per annum 50,00,000

Loan from State Electricity Board 1,00,00,000

11% Debentures 8,00,000

Development Reserve 32,00,000

Show how the surplus of the company will be disposed of under theprovisions of the Electricity Act. (8 Marks)

(b) The following balances were extracted from the books of M/s Part & Parcel.You are required to prepare Departmental Trading Account and Profit andLoss account for the year ended 31st December, 2011 after adjusting theunrealized department profits if any.

Deptt. A Deptt. B

Opening Stock 50,000 40,000

Purchases 6,50,000 9,10,000

Sales 10,00,000 15,00,000

General expenses incurred for both the departments were `1,25,000 andyou are also supplied with the following information: (a) Closing stock ofDepartment A `1,00,000 including goods from Department B for `20,000 atcost of Department A. (b) Closing stock of Department B ` 2,00,000including goods from Department A for `30,000 at cost to Department B. (c)Opening stock of Department A and Department B include goods of the


69/127


value of `10,000 and `15,000 taken form Department B and Department Arespectively at cost to transferee departments. (d) The gross profit isuniform from year to year. (8 Marks)

Question 7: Answer any four out of five:(a) From the following information of Honour Bank Limited, compute the

provisions to be made in the Profit and Loss account:

in lakhs

Assets

Standard 20,000

Substandard 16,000

Doubtful

For one year (secured) 6,000

For two years and three years (secured) 4,000

For more than three years (secured by mortgage of 2,000plant and machinery `600 lakhs)

Non-recoverable Assets 1,500

(b) A Limited Company closed its accounting year on 30.6.11 and the accountsfor hat period were considered and approved by the board of directors on20th August, 2011. The company was engaged in laying pipe line for an oilcompany deep beneath the earth. While doing the boring work on 1.9.2011it had met a rocky surface for which it was estimated that there would be anextra cost to the tune of `80 lakhs. You are required to state with reasons,how the event would be dealt with in the financial statements for the yearended 30.6.11.

(c) S Ltd. purchased fixed assets costing ` 3,000 lakhs on 1.1.2011 and the

same was fully financed by foreign currency loan (U.S. Dollars) payable inthree annual equal instalments. Exchange rates were 1 Dollar = `40.00 and` 42.50 as on 1.1.2011 and 31.12.2011 respectively. First instalment waspaid on 31.12.2011. The entire difference in foreign exchange has beencapitalized.

You are required to state, how these transactions would be accounted for.

(d) Should appropriation to mandatory reserves be excluded from net profitattributable to equity shareholders?

Kraft Ltd. is engaged in manufacturing industrial packaging equipment. Asper the terms of an agreement entered into with its debentureholders, thecompany is required to appropriate adequate portion of its profits to aspecific reserve over the period of maturity of the debentures such that, atthe redemption date, the Reserve constitutes at least half the value of suchdebentures. As such, appropriations are not available for distribution to theequity shareholders. Kraft Ltd. has excluded this from the numerator in thecomputation of basis EPS. Is this treatment correct?


70/127


(e) Rishi Limited has set up its business in a designated backward area whichentitles the company to receive from the Government of India a subsidy of20% of the cost of investment. Having fulfilled all the conditions under the

scheme, the company on its investment of`

50 crore in capital assets,received ` 10 crore from the Government in January, 2012 (accountingperiod being 2011-2012). The company wants to treat this receipt as an itemof revenue and thereby reduce the losses on profit and loss account for theyear ended 31st March, 2012.

Keeping in view the relevant Accounting Standard, discuss whether thisaction is justified or not. (5 Marks each)


71/127

MOCK TEST PAPER-B

PAPER - 5: ADVANCED ACCOUNTING SUGGESTED

ANSWERS/HINTSAns 1:

(a) According to AS 29 'Provisions, Contingent Liabilities and ContingentAssets', contingent liability should be disclosed in the financial statements iffollowing conditions are satisfied:

(i) There is a present obligation arising out of past events but notrecognized as provision.

(ii) It is not probable that an outflow of resources embodying economicbenefits will be required to settle the obligation.

(iii) The possibility of an outflow of resources embodying economic benefitsis also remote.

(iv) The amount of the obligation cannot be measured with sufficient

reliability to be recognized as provision.In this case, the probability of winning of first five cases is 100% and hence,question of providing for contingent loss does not arise. The probability ofwinning of next ten cases is 60% and for remaining five cases is 50%. Asper AS 29, we make a provision if the loss is probable. As the loss does notappear to be probable and the possibility of an outflow of resourcesembodying economic benefits is not remote rather there is reasonablepossibility of loss, therefore disclosure by way of note should be made. Forthe purpose of the disclosure of contingent liability by way of note, amountmay be calculated as under:

Expected loss in next ten cases = 30% of`1,20,000 + 10% of

`2,00,000

=`

36,000 +`

20,000= `56,000

Expected loss in remaining five cases = 30% of`1,00,000 + 20% of

`2,10,000

= `30,000 +`42,000

= `72,000

To disclose contingent liability on the basis of maximum loss will be highlyunrealistic. Therefore, the better approach will be to disclose the overall

expected loss of`9,20,000 (`56,000 10 +`72,000 5) as contingentliability.

(b) 1. Computation of Actual Borrow ing Costs incurred during the year

Source LoanAmount

InterestRate

InterestAmount

in lakhs in lakhs

Bank Loan 65.00 10% 6.50

9% Debentures 125.00 9% 11.25


72/127

28 Mock Test Paper-B: Answers

Loan Interest InterestSourceAmount Rate Amount

Term Loan from Corporation Bank 100.00 10% 10.00

Term Loan from State Bank of India 110.00 11.5% 12.65

Total 400.00 40.40

Specific Borrowings included above 190.00 17.75

2. Weighted Average Capitalisation Rate for General Borrowings

=Total Interest Interest on Specific Borrowings

Total Borrowings Specific Borrowings

-

-

=(

( ))40.40 17.75

400 190

-

-100 = 10.79%

3. Capitalisation of Borrowing Costs under AS -16 will be as under:

Plant Borrowing LoanAmount

InterestRate

InterestAmount

Cost of Asset

in lakhs in lakhs In lakhs In lakhs

P General 100 10.79% 10.79 110.79

Q Specific 65 10.00% 6.50 71.50

General 60 10.79% 6.47 66.47 137.97

R Specific 125 9.00% 11.25 136.25

General 50 10.79% 5.39 55.39 191.64

Total 400 40.40 440.40

Note: The amount of borrowing costs capitalized should not exceed the actualinterest cost.

(c) Journal Entries in the Books of Bharat Ltd.

Date Particulars Dr.() Cr.()31.3.2009 Employees compensation expenses account Dr. 48,000

To Employees stock option outstanding account 48,000

(Being compensation expenses recognized in respectof the employees stock option i.e. 1,000 options grantedto employees at a discount of`120 each, amortised on

straight line basis over1

22

years)

Profit and loss account Dr. 48,000

To Employees compensation expenses account 48,000

(Being expenses transferred to profit and loss accountat the end of the year)


73/127

Mock Test Paper-B: Answers 29

Date Particulars Dr.() Cr.()31.3.2010 Employees compensation expenses account Dr. 48,000

To Employees stock option outstanding account 48,000

(Being compensation expenses recognized in respectof the employee stock option i.e. 1,000 options grantedto employees at a discount of`120 each, amortised on

straight line basis over1

22

years)

Profit and loss account Dr. 48,000

To Employees compensation expenses account 48,000

(Being expenses transferred to profit and loss accountat the end of the year)

31.3.2011 Employees stock option outstanding account (W.N.1) Dr. 12,000

To General Reserve account (W.N.1) 12,000

(Being excess of employees compensation expensestransferred to general reserve account)

30.6.2011 Bank A/c (600 `40) Dr. 24,000

Employee stock option outstanding account

(600 `120) Dr. 72,000

To Equity share capital account(600 `10) 6,000

To Securities premium account(600 `150) 90,000

(Being 600 employees stock option exercised at anexercise price of`40 each)

1.10.2011 Employee stock option outstanding account Dr. 12,000

To General reserve account 12,000

(Being Employees stock option outstanding A/ctransferred to General Reserve A/c, on lapse of 100options at the end of exercise of option period)

Working Note:

On 31.3.2011, Bharat Ltd. will examine its actual forfeitures and makenecessary adjustments, if any to reflect expenses for the number of options,that have actually vested. 700 employees stock options have completed 2.5years vesting period, the expense to be recognized during the year is innegative i.e.

No. of options actually vested (700 `120) ` 84,000

Less: Expenses recognized`(48,000 + 48,000) (96,000)

Excess expenses transferred to general reserve 12,000

(d) The preparation of financial statements involve making estimates which arebased on the circumstances existing at the time when the financialstatements are prepared. It may be necessary to revise an estimate in a


74/127


subsequent period if there is a change in the circumstances on which theestimate was based. Revision of an estimate, by its nature, does not bringthe adjustment within the definitions of a prior period item or an

extraordinary item [para 21 of AS 5 (Revised) on Net Profit or Loss for thePeriod, Prior Period Items and Changes in Accounting Policies].

In the given case, a limited company created 2.5% provision for doubtfuldebts for the year 2011-12. Subsequently in 2012 they revised the estimatesbased on the changed circumstances and wants to create 8% provision. Asper AS-5 (Revised), this change in estimate is neither a prior period item noran extraordinary item.

However, as per para 27 of AS 5 (Revised), a change in accountingestimate which has material effect in the current period, should be disclosedand quantified. Any change in the accounting estimate which is expected tohave a material effect in later periods should also be disclosed.

Ans 2: Realisation Account

Particular ParticularsTo Sundry assets: By Creditors 2,77,500

Stock 3,17,000 By Bills payables 51,000

Debtors 3,25,000 By Bank overdraft 75,000

Plant 1,63,875 By Shares in ST Ltd.(W.N. 3)

18,80,000

Building 8,64,500

Furniture 73,125

To Profit:

S 2,70,000

T 2,70,000 5,40,000

22,83,500 22,83,500

Partners' Capital Accounts

Date Particulars S T Date Particulars S T

2011 2011

April To Cash- 20,000 20,000 April 1 By Balance b/d 6,40,000 6,60,000

1 Drawings

(W.N. 2)

Working Notes:1. Ascertainment of capital as on 30th September, 2011

Balance Sheet as at 30th September, 2011Sept. 30 To Shares in ST Ltd. 9,30,000 9,50,000 Sept. 30 By Profit (W.N.2) 40,000 40,000

By Realisation

A/c (Profit) 2.70.000 2.70.000

9.50.000 970.000 9.50.000 970.000


75/127


Liabilities Assets

Sundry creditors 2,77,500 Building 9,10,000

Bills payable 51,000 Less: Depreciation (45,500) 8,64,500Bank overdraft 75,000 Plant 1,72,500

Total capital (bal. fig.) 13,40,000 Less: Depreciation (8,625) 1,63,875

Furniture 75,000

Less: Depreciation (1,875) 73,125

Stock 3,17,000

Debtors 3,25,000

17,43,500 17,43,500

2. Profit earned dur ing six months ended 30th September, 2011

Total capital (of S and T) on 30th September, 2011(W.N.1)

13,40,000

Capital on 1st April, 2011

S 6,40,000

T 6,60,000 (13,00,000)

Net increase (after drawings) 40,000

Since drawings are half of profits therefore, actual profit earned is`40,000

2 =`80,000 (shared equally by partners S and T).

Half of the profits, has been withdrawn by both the partners equally i.e.

drawings`40,000 (`80,000 ) withdrawn by S and T in 1:1 (i.e.`20,000each).

3. Purchase consideration

Total assets (W.N. 1) 17,43,500

Add: Goodwill 5.40,000

22,83,500

Less: Liabilities (2,77,500+51,000 + 75,000) (4,03,500)

Purchase consideration 18,80,000

Note: The above solution is given on the basis that reduction in bank overdraft isafter surrender of Joint life policy.

Ans 3: In the Books of Success Ltd.

Debenture Stock Account

2009 2009

Sept. 30 To Debenture Jan. 1 By Balance b/d 10,00,000

Redemption A/c 1,20,000


76/127


2009 2009

Dec. 31 To Balance c/d 8,80,000

10,00,000 10,00,0002010 ` 2010 `

May 31 To Debenture Jan. 1 By Balance b/d 8,80,000

Redemption A/c 75,000

Dec.31 To Debenture

Redemption A/c 25,000

To Balance c/d 7.80,000

8,80,000 8,80,000

2011 ` 2011 `

July 31 To Debenture Jan. 1 By Balance b/d 7,80,000Redemption A/c 1,15,000

Dec.31 To Balance c/d 6,65,000

7,80,000 7,80,000

Debenture Redemption Account

2009 2009

Sept 30 To Bank A/c 1,15,800 Sept. 30 By Debenture Stock A/c 1,20,000

(`1,20,000x0.98 -`1,800)

To Capital Reserve A/c 4,200

1,20,000 1.20.000

2010 ` 2010 `

May 30 To Bank A/c 71,250 May 31 By Debenture Stock A/c 75,000

(`75,0000.95) Dec. 31 By Debenture Stock A/c 25,000


(Profit on cancellation)

Dec.31 To Bank A/c 25,000

(Shortfall =`1,00,000 -`75,000)

1,00,000 1,00,000

2011 ` 2011 `

July 31 To Bank A/c 1,05,225 July 31 By Debenture Stock A/c 1,15,000

(`1,15,000.92-`575)


(Profit on cancellation)

1,15,000 1,15,000


77/127


Debenture Interest Account

2009 2009

June 30 To Bank A/c 30,000 Dec. 31 By Profit and Loss A/c 58,200

Sept. 30 To Bank A/c 1,800

Dec. 31 To Bank A/c 26,400

58,200 58,200

2010 ` 2010 `

May 31 To Bank A/c 1,875 Dec. 31 By Profit and Loss A/c 50,175

June 31 To Bank A/c 24,150


50,175 50,175

2011 ` 2011 `

June 30 To Bank A/c 23,400 Dec. 31 By Profit and Loss A/c 43,925

July 31 To Bank A/c 575


43,925 43,925

Working Notes:

Interest paid on Debentures @ 6% per annum:

Date Amount ofDebentures

Period Interest

2009

June 30 10,00,000 6 months 30,000

Sept. 30 1,20,000 3 months 1,800Dec. 31 8,80,000 6 months 26,400

2010

May 31 75,000 5 months 1,875

June 30 8,05,000 6 months 24,150

Dec. 31 8,05,000 6 months 24,150

2011

June 30 7,80,000 6 months 23,400

July 31 1,15,000 1 month 575

Dec. 31 6,65,000 6 months 19,950

Notes:(1) It has been assumed that debentures are purchased for immediate

cancellation.

(2) The purchases of 30th September, 2009 and 31st July, 2011 have beentaken on cum-interest basis


78/127


Ans 4: FORM B - RA

Name of the Insurer: Saviour General Insurance Company

Registration no. and date of registration with IRDA :

Revenue Account fo r the year ended 31.3.2012

Particulars Schedule Amount ()1. Premium earned (Net) 1 27,03,000

2. Profit/Loss on sales/Redemption ofinvestment

- -

3. Other - -

4. Interest, dividend & rent (Gross) - 30,000

Total (A) 27,33,000

1. Claims incurred (Net) 2 19,44,000

2. Commission 3 68,400

3. Operating expenses related to insurancebusiness

4 1,20,000

Total (B) 21,32,400

Operating profit/Loss from insurance business

(C) = (A-B) 6,00,600

Appropriation:

Transfer to Shareholders account -

Transfer to Catastrophe Reserve -

Transfer to other reserves -

Total (D) -

Schedule -1 Premium Earned (Net)

Particulars

Premium received from direct business (W.N.1) 30,60,000

Add: Premium on reinsurance accepted (2,40,000 + 36,000 -24,000)

2,52,000

33,12,000

Less. Premium on reinsurance ceded (3,60,000 + 42,000 - 30,000) (3,72,000)

Net Premium 29,40,000

Adjustment for change in reserve for unexpired risk (W.N.2) (2,37,000)

Total premium earned (Net) 27,03,000

Schedule - 2 Claims Incurred (Net)

Particulars

Claims paid (Direct) 18,00,000

Add: Legal expenses regarding claims 12.000

18,12,000


79/127


Particulars

Add: Reinsurance Accepted 1,80,000

19,92,000Less: Reinsurance ceded (1,20,000 + 12,000 -18,000) (1,14,000)

18,78,000

Add: Claims outstanding at the end (1,20,000 +18,000) 1,38,000

20,16,000

Less: Claims outstanding at the beginning (60,000 + 12,000) (72,000)

Total claim incurred 19,44,000

Schedule -3 Commission

Particulars

Commission paid Direct 72,000

Add: Re-insurance accepted 10,800

82,800

Less. Re-insurance ceded (14,400)

Net commission 68,400

Schedule - 4 Operating Expenses related to Insurance Bus iness

Particulars

Expenses of management (1,32,000 -12,000) 1,20,000

1,20,000

Working Notes:

1. Calculation of premium received from direct business

Premium on direct business 30,00,000

Add: Premium outstanding at the end 2,40,000

32,40,000

Less. 'Premium outstanding at the beginning (1,80,000)

30,60,000

2. Computation of change in reserve for unexpired risk

Reserve for unexpired risk for the year 2011-12 (29,40,000 50%) 14,70,000

Add: Additional reserve for unexpired risk for the year 2011-12(29,40,000 5%)

1,47,000

16,17,000


80/127


Less: Reserve for unexpired risk for the year 2010-11

(24,00,000

50%) (12,00,000)Additional reserve for unexpired risk for the year

(24,00,000 7.5%) (1,80,000)

2,37,000

Ans 5:(a) Branch Debtors A/c

To Branch Stock A/c 1,16,000 To Branch Cash A/c 74,000

To Bad Debts written off 400

To Balance c/d 41,600

1,16,000 1,16,000

Goods Sent to Branch A/cTo Branch Adjustment A/c 20,000 By Branch Stock A/c 1,20,000

201,00,000

100

To Purchases/ Trading A/c 1,00,000

1,20,000 1,20,000

Branch Cash A/cTo Branch Debtors A/c 74,000 By Branch Expenses A/c 24,000

To Branch remittance from 6,000 By Cash to H.O. 86,000

H.O.To Branch Stock A/c By Balance c/d 4,000

- Cash Sales

(balancing figure) 34,000

1,14,000 1,14,000

Branch Stock A/c

To Goods sent to BranchA/c

1,20,000 By Branch Debtors A/c(balancing figure)

1,16,000

To Branch Adjustment A/c 54,000 By Cash Sales 34,000

(Excess profit over normal

loading)

By Goods in Transit

(1,20,000-1,08,000)

12,000

By Balance c/d 12,000

1,74,000 1,74,000

`[1,16,000 + 34,000 -(1,20,000-12,000-12,000)]


81/127


Branch Expenses A/cTo Branch Cash A/c 24,000 By Branch P&L A/c 24,000

Branch Adjustment A/c

To Stock Reserve 2,000 By Goods sent to Branch A/c 20,000

To Goods in Transit Reserve 2,000 By Branch Stock A/c 54,000

To Branch P&L A/c 70,000

74,000 74,000

Branch P&L A/cTo Branch Expenses A/c 24,000 By Branch Adjustment A/c 70,000

To Bad Debts 400

To Prom 45,600

70,000 70,000

(b)

Total number of shares issued 10,00,000 sharesLess: Shares taken by the directors and others (1,00,000 shares)

Shares offered to general public 9,00,000 shares

Statement Showing the Liability of Underwriters

(Number of shares)

X Y Z

Gross liability (65%: 25%: 10%) 5,85,000 2,25,000 90,000

Less: Marked applications (1,19,500) (57,500) (10,500)

4,65,500 1,67,500 79,500

Less: Unmarked applications in the ratio ofgross liability

(4,55,000) (1,75,000) (70,000)

Resultant Liability (or Surplus) 10,500 (7,500) 9,500

Less: Surplus of Y allocated to and Z in theratio of 65:10

(6,500) (7,500) (1,000)

Net Liability as per agreement 4,000 Nil 8,500

In the books of a Join t Stock CompanyJournal Entries

Date Particulars Dr. () Cr. ()Bank A/c Dr. 11,00,000

To Equity Share Capital A/c 10,00,000

To Securities Premium A/c 1,00,000

(Being the issue of 1,00,000 equity shares of`

10 each at a premium of`1 per share to thedirectors, their relatives and friends as perBoard's Resolution No dated )


82/127


Date Particulars Dr. () Cr. ()Bank A/c Dr. 97,62,500

To Share Application A/c 97,62,500(Being application money received on 8,87,500shares @`11 each)

X (4,000 shares `11) Dr. 44,000

Z (8,500 shares `11) Dr. 93,500

Share Application A/c Dr. 97,62,500

To Equity Share Capital A/c 90,00,000

To Securities Premium A/c 9,00,000

(Being allotment of shares to - 4,000 and Z-8,500, application money credited to EquityShare Capital Account and Securities Premium

Account as per Board's ResolutionNo....dated....)

Underwriting Commission A/c Dr. 1,98,000

To X (Note 1) 1,28,700

To Y (Note 1) 49,500

To Z (Note 2) 19,800

(Being the amount payable to X, Y and Z asunderwriting commission @ 2% of the issueprice)

X Dr. 84,700

Y Dr. 49,500

To Bank A/c 1,34,200

(Being the amount paid to X and Y in respect ofunderwriting commission after adjustingamount payable on shares allotted)

Bank A/c Dr. 73,700

To Z 73,700

(Being the balance money received from Z onshares allotted after adjusting underwritingcommission)

Working Note:

Statement showing the Amount Due from (Due to) Underwriters

Underwriters X Y Z

Number of shares to be subscribed asper agreement

4,000 Nil 8,500


83/127


Underwriters X Y Z

Amount payable @`11 per share (`) 44,000 - 93,500

Less: Underwriting commission @ 2%X - on`64,35,000 (1,28,700) - -

Y-on`24,75,000 - (49,500) -

Z - on`9,90,000 _ _ _ (19,800)

Amount paid/ (received) (84,700) (49,500) 73,700

Ans 6:

(a) Calculation of Reasonable Return

10% (Bank rate 8% +2%) of capital base 87,40,000

8% on Reserve fund investments 9,60,000 % on Loan from State Electricity Board 50,000

% on 11 % Debentures 4,000

on Development reserve 16,000

97,70,000

Surplus:

Clear Profit-Reasonable return (`1,20,00,000-97,70,000) `22,30,000

20% of Reasonable Return `19,54,000

whichever is less is for disposal as surplus i.e. `19,54,000

Statement showing Disposal of surplus

(i) 1/3rd of surplus limited to 5% of reasonable return is at the

disposal of the company 4,88,500

1/3rd of surplus =`6,51,333

Or, 5% of reasonable return =`4,88,500

(ii) Credit to Tariffs and Dividend Control Reserve (1/2 of

remaining balance of 20% of reasonable return)

`19,54,000-4,88,500 =`14,65,500 1/2 7,32,750

(iii) Remaining balance credited to customers account 7,32,750

19,54,000


84/127


(b) Departmental Trading and Loss Account of M/s Part and Parcel

For the year ended 31st December, 2011

Deptt. A Deptt. B Deptt. A Deptt. B

To Opening stock 50,000 40,000 By Sales 10,00,000 15,00,000

To Purchases 6,50,000 9,10,000 By Closingstock

1,00,000 2,00,000

To Gross profit 4,00,000 7,50,000

11,00,000 17,00,000 11,00,000 17,00,000

To General By Gross profit 4,00,000 7,50,000

Expenses

(in ratio of

sales) 50,000 75,000

To Profit togeneral

3,50,000 6,75,000

profit and loss

account

4,00,000 7,50,000 4,00,000 7,50,000

General Profit and Loss Account

To Stock reserve required (additional): By Profit from:

Stock in Deptt. A Deptt. A 3,50,000

50% of (`20,000 -`10,000) (W.N.1) 5,000 Deptt. B 6,75,000Stock in Deptt. B

40% of (`30,000 -`15,000) (W.N.2) 6,000

To Net Profit 10,14,000

10,25,000 10,25,000

Working Notes:

1. Stock of department A will be adjusted according to the rate applicable todepartment B = [(7,50,000 + 15,00,000) 100] = 50%

2. Stock of department B will be adjusted according to the rate applicable todepartment A = [(4,00,000 + 10,00,000) 100] = 40%

Ans 7:

(a) Calculation of amount of provision to be made in the Profit and LossAccount


85/127


Classification of Assets Amount ofadvances

% age ofprovision

Amount ofprovision

(

in lakhs) (

in lakhs)Standard assets 20,000 0.40 80

Sub-standard assets 16,000 15 2,400

Doubtful assets:

For one year (secured) 6,000 25 1,500

For two to three years (secured) 4,000 40 1,600

For more than three years

(unsecured) 1,400 100 1,400

(secured) 600 100 600

Non-recoverable assets (Loss assets) 1,500 100 1,500

Total provision required 9.080

(b) Para 3.2 of AS 4 (Revised) on Contingencies and Events Occurring after theBalance Sheet Date defines events occurring after the balance sheet dateas significant events, both favourable and unfavourable, that occur betweenthe balance sheet date and the date on which financial statements areapproved by the Board of Directors in the case of a company. The givencase is discussed in the light of the above mentioned definition andrequirements given in paras 13-15 of the said AS 4 (Revised).

In this case the incidence, which was expected to push up cost by ` 80lakhs became evident after the date of approval of the accounts. So thatwas not an 'event occurring after the balance sheet date'. However, this maybe mentioned in the Directors' Report

(c) As per para 13 of AS 11 (Revised 2003) 'The Effects of Changes in ForeignExchange Rates', exchange differences arising on the settlement ofmonetary items or on reporting an enterprise's monetary items at ratesdifferent from those at which they were initially recorded during the period,or reported in previous financial statements, should be recognized asincome or expenses in the period in which they arise. Thus exchangedifferences arising on repayment of liabilities incurred for the purpose ofacquiring fixed assets are recognized as income or expense.

Calculation of Exchange Difference:

Foreign currency loan =`3, 000 lakhs

40= 75 lakhs US Dollars

Exchange difference = 75 lakhs US Dollars (42.50 - 40.00)

=`187.50 lakhs

(including exchange loss on payment of first instalment)

Therefore, entire loss due to exchange differences amounting ` 187.50lakhs should be charged to profit and loss account for the year.

Sub-standards assets have been assumed as fully secured.


86/127


(d) Para 11 of AS 20 states that "for the purpose of calculating basic earningsper share, the net profit or loss for the period attributable to Equityshareholders should be the net profit or loss for the period after deducting

preference dividends and any attributable tax thereto for the period".With an emphasis on the phrase "attributable to equity shareholders", it maybe construed that amount appropriated to Mandatory Reserves as describedin this case, though not available for distribution as dividend, are stillattributable to equity shareholders.

Therefore, the appropriation made to mandatory reserve created for theredemption of debentures would be included in the net profit attributable toequity shareholders for the computation of Basic EPS. The treatment madeby the company is not correct.

(e) As per para 10 of AS 12 'Accounting for Government Grants', where thegovernment grants are of the nature of promoters' contribution, i.e. they aregiven with reference to the total investment in an undertaking or by way ofcontribution towards its total capital outlay (for example, central investment

subsidy scheme) and no repayment is ordinarily expected in respect thereof,the grants are treated as capital reserve which can be neither distributed asdividend nor considered as deferred income.

In the given case, the subsidy received is neither in relation to specific fixedasset nor in relation to revenue. Thus it is inappropriate to recognisegovernment grants in the profit and loss statement, since they are notearned but represent an incentive provided by government without relatedcosts. The correct treatment is to credit the subsidy to capital reserve.Therefore, the accounting treatment followed by the company is not proper.


87/127

MOCK TEST PAPER-C

IPCC: GROUP-II

PAPER - 5: ADVANCED ACCOUNTINGQuestion 1:

(a) Hello Ltd. took a factory premises on lease on 1.4.2011 for `4,00,000 permonth. The lease is operating lease. During March, 2012, Hello Ltd.relocates its operation to a new factory building. The lease on the old factorypremises continues to be live upto 31.12.2014. The lease cannot becancelled and cannot be sub-let to another user. The auditor insists thatlease rent of balance 33 months upto 31.12.2014 should be provided in theaccounts for the year ending 31.3.2012. Hello Ltd. seeks your advice.

(b) An industry borrowed `20,00,000 for purchase of machinery on 1.6.2011.Interest on loan is 9% per annum. The machinery was put to use from1.1.2012. Pass journal entry for the year ended 31.3.2012 to record the

borrowing cost of loan as per AS 16.(c) A company with a turnover of `50 crores and an annual advertising budgetof `0.4 crore had taken up the marketing of a new product. It was estimatedthat the company would have a turnover of `5 crores from the new product.The company had debited to its Profit and Loss account the totalexpenditure of `0.4 crore incurred on extensive special initial advertisementcampaign for the new product.

Is the procedure adopted by the company correct `

(d) From the following information relating to Y Ltd. Calculate Earnings PerShare (EPS):

in crores

Profit before V.R.S. payments but after depreciation 75.00

Depreciation 10.00

VRS payments 32.10

Provision for taxation 15.00

Paid up share capital (shares of `10 each fully paid) 93.00

(5 Marks each)

Question 2: Following are the summarised Balance Sheets of T Ltd. and P Ltd.as at 31.3.2012:

Particulars T Ltd. P Ltd.

Share capital: Equity shares of `10 each (fully paid up) 2,00,000 1,20,000

Securities premium 40,000 -General reserve 60,000 50,000

Profit and loss account 36,000 32,000

10% Debentures 1,00,000 -

Secured loan - 60,000


88/127

44 Mock Test Paper-C: Questions

Particulars T Ltd. P Ltd.

Sundry creditors 52,000 34,0004,88,000 2,96,000

Land and building 1,80,000 90,000

Plant and machinery 1,00,000 76,000

Investment 16,000 -

Stock 1,04,000 70,000

Debtors 82,000 52,000

Cash at bank 6,000 8,000

4,88,000 2,96,000

The companies agree on a scheme of amalgamation on the following terms:

(i) A new company is to be formed by name TP Ltd.(ii) TP Ltd. to take over all the assets and liabilities of the existing

companies. Amalgamation is to be considered in the nature ofpurchase.

(iii) For the purpose of amalgamation, the shares of the existing companiesare to be valued as under

T Ltd. = `18 per share

P Ltd. =`20 per share

(iv) A contingent liability of T Ltd. of ` 12,000 is to be treated as actualexisting liability.

(v) The shareholders of T Ltd. and P Ltd. are to be paid by issuingsufficient number of shares of TP Ltd. at a premium of `6 per share.

(vi) The face value of shares of TP Ltd. are to be of `10 each.You are required to:

(i) Calculate the purchase consideration (i.e., number of shares to beissued to T Ltd. and P Ltd.).

(ii) Pass journal entries in the books of T Ltd. for the transfer of assets andliabilities.

(iii) Pass journal entries in the books of TP Ltd. for acquisition of T Ltd. andP Ltd.

(iv) Prepare the Balance Sheet of TP Ltd. (16 Marks)

Question 3: E, F and G were partners in business, sharing profits & losses in theratio 2:1:1. Their Balance Sheet as at 31.3.2012 is as follows:

Balance Sheet as at 31.3.2012

(Figures in `000)Liabilities Assets

Fixed Capital: Fixed Assets 9,00,000

E 6,00,000 Investments 1,50,000

F 3,00,000 Current


89/127

Mock Test Paper-C: Questions 45

Liabilities Assets

G 3,00,000 12,00,000 Assets:

Current Accounts: Stock 3,00,000E 1,20,000 Debtors 1,80,000

F 60,000 1,80,000 Cash & Bank 4,50,000 9,30,000

Unsecured Loans 6,00,000

19,80,000 19,80,000

On 1.4.2012, it is agreed among the partners that FG (P) Ltd. a newlyformed company with F and G having each taken up 100 shares of ` 10each will take over the firm as a going concern including goodwill butexcluding cash & bank balances. The following points are also agreed upon:

(a) Goodwill will be valued at 3 years purchase of super profits.

(b) The actual profit for the purpose of goodwill valuation will be `3,00,000.

(c) Normal rate of return will be 15% on fixed capital.(d) All other assets and liabilities will be taken over at book values.

(e) The purchase consideration will be payable partly in shares of ` 10each and partly in cash. Payment in cash being to meet therequirement to discharge E, who has agreed to retire.

(f) F and G are to acquire equal interest in the new company by adjustingthe difference through their capital accounts.

(g) Expenses of liquidation `1,20,000.

You are required to prepare the necessary Ledger Accounts. (16 Marks)Question 4: The London branch of Amit, Kolkata sent the following trial balanceas on 31st December, 2012:

$ $

Head office A/c 11,400

Sales 42,000

Debtors and creditors 2,400 1,700

Machinery 12,000 _

Cash at bank 600

Stock, 1 January, 2012 5,600 _

Goods from H.O. 32,000

Expenses 2,500

55,100 55,100

In the books of head office, the Branch A/c stood as follows:

London Branch A/c

To Balance b/d 4,05,000 By Cash 14,38,000

To Goods sent to branch 14,63,000 By Balance c/d 4,30,000

18,68,000 18,68,000


90/127

46 Mock Test Paper-C: Questions

Goods are sent to the

revision kit groupii

Documents